Local banks in sound financial health, says MAS

SINGAPORE - Singapore's banks are in good health despite a move by Moody's Investors Service to downgrade the banking system's outlook on Monday.

The reassurance has come from the Monetary Authority of Singapore (MAS), which said on Tuesday that the local banks have strong financial positions and are "not at risk".

In fact, the Singapore banks have the highest average credit ratings among banking systems globally, MAS noted.

There has been some concern in the market after Moody's lowered Singapore's banking system outlook from "stable" to "negative" on Monday.

It said the local lenders - DBS, OCBC and UOB - could face more loan defaults as interest rates rise, particularly as household debt has risen more than 40 per cent since 2009.

In response to media queries on Tuesday, MAS said the local banks "continue to have strong financial positions by any serious assessment" and maintain capital levels well above globally prescribed standards.

It added that some borrowers may be at risk of being overstretched, especially when interest rates rise.

"However, the local banks are not at risk," MAS said. "They undertake regular stress tests... and have adequate buffers in place to cope with the inevitable upturn in the interest rate cycle."

MAS has been monitoring this and other risks over the last few years. It has also taken steps to address property market risks.

These include reducing loan limits and loan tenures for property loans, imposing tighter lending practices and monitoring banks' credit underwriting practices to ensure prudence.

The regulator noted on Tuesday that Moody's move should be viewed against the backdrop where a number of well-rated banking systems have also had their ratings outlook lowered over the past two years.

The revisions are "understandable, in light of the impact that low global interest rates have had on credit growth and asset prices, and the potential risks when interest rates rise", MAS said.

"The local banks are not immune to such concerns."

Moody's senior analyst Gene Fang agreed: "With this outlook, what we're trying to flag is the fact that there are environmental factors that may have an impact on the banks' core credit fundamentals," he told The Straits Times on Tuesday.

The outlook downgrade has not affected Moody's ratings of the three local banks - all rated Aa1.This reflects Moody's belief that the banks have stable and predictable futures and can withstand shocks, Mr Fang said.

Mizuho Bank senior economist Vishnu Varathan said: "It's not the end of the world and a lot of global banks are faring much worse. It's a fair assessment of the situation."

Bank of America Merrill Lynch economist Chua Hak Bin said while household debt is rising, so are cash deposits. Company and household balance sheets should be "resilient", he said.

The lenders are confident they can weather an interest rate rise or downturn in the economic outlook.

"The Singapore banking industry is sound from both a capital and balance sheet standpoint to withstand the potential market risks," said United Overseas Bank's managing director of investor relations, Mr Jimmy Koh.

OCBC Bank's head of investor relations, Mr Collins Chin, said: "Singapore's banks continue to be prudently run, with sound financial metrics, and supported by strong credit ratings."

yasminey@sph.com.sg

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